Abstract

  


 



Capital Structure and Earnings Manipulation


Anton Miglo


University of Bridgeport - School of Business; University of Guelph - Department of Economics
June 14, 2010

Journal of Economics and Business, Forthcoming

Abstract:     
We consider an optimal contract between an entrepreneur and an investor, where the entrepreneur is subject to a double moral hazard problem (one being the choice of production effort and the other being earnings manipulation). Since the entrepreneur cannot entirely capture the results of his effort, investment is below the optimal level and production effort is socially inefficient. The opportunity to manipulate earnings protects the entrepreneur against the risk of a low payoff when production is unsuccessful. Ex-ante, this provides an incentive for the entrepreneur to increase investment and improve effort.

Keywords: Earnings Manipulation, Intertemporal Substitution, Design of Securities, Property Rights, Double Moral Hazard

JEL Classification: G32, D92, D82

Accepted Paper Series


Date posted: June 14, 2010  

Suggested Citation

Miglo, Anton, Capital Structure and Earnings Manipulation (June 14, 2010). Journal of Economics and Business, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1624926

Contact Information

Anton Miglo (Contact Author)
University of Bridgeport - School of Business ( email )
126 Park Avenue
Bridgeport, CT 06601
United States
HOME PAGE: http://www.bridgeport.edu/~amiglo
University of Guelph - Department of Economics ( email )
Guelph, Ontario N1G 2W1
Canada
Feedback to SSRN (Beta)


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